Monday, June 25, 2012

Human Capital.

Most of my attention on sustainability has thus far focused on natural resources, ranging from oil to the environment.I now want to turn my attention to the most important resource; humans and their abilities.We are an important resource indeed.We create the value added to all the natural resources we consume.The quality of the humans in an economy can best be seen in examples such as Switzerland, which is a country with relatively few natural resources, yet they have a very high standard of living compared to a country like Nigeria, which has valuable resources, but clearly the human resource is lacking.The Swiss have a superior ability to not only cultivate the necessary individual skills, but also managed to create the cultural and legal institutions that can maximize the skills of the individual.There is nothing more important for us in the developed world than guarding this precious resource, if we are to maintain our lifestyle.

Human capital in the developing world:

The message that poor countries are constantly told is that if they want to advance, they need to invest in their people.Many countries are doing just that, and it is reflected in their education rankings improving, together with the economy.Most of these countries are not yet at the point where they can also afford to take care of the overall health of their workforce.In fact, part of the strategy to get them to where they are now was a move to allow for the intense exploitation of the workforce and the environment, both of which lead to a less healthy population.Countries that fit this category include China, India, Indonesia, Brazil, Vietnam, and many other fast growing economies around the world.For these countries, the only way that they will ever achieve the level of development that we in the western world currently enjoy is if they will reach a point where they will shift the exploitation of their own people and environment to the rest of the world, while keeping the proceeds for themselves.

Human capital in the underdeveloped world:

Countries that managed to get one aspect of the human resource equation right (education and skills) are able to advance to some extent as I mentioned.There are however countries that despite being able to offer very cheap labor, and despite being willing to allow for their environment to be exploited intensively, cannot achieve a minimum level of human development to allow them to attract investment in some basic production facilities.They are also unable to provide basic physical infrastructure, such as a reliable transport or power grid infrastructure.These countries typically experience very high population growth rates, so they cannot increase their Capital per capita.Such countries are most often found on the African continent, but not exclusively there.There are also countries elsewhere, such as Haiti that fit this category.

Human capital in the developed word:

Once upon a time, we were the ones preaching to the rest of the world that if they want to advance and join us in enjoying the good life, they better follow our example and start investing in their human capital.Some western countries still follow their own advice, but there are many other countries where it was decided that it is an unnecessary investment.Thanks to the process of globalization, companies can move abroad, and tap into the workforce of the developing world, in places like China and India, where even though the number of people relative to the population who are highly capable may not yet be comparatively high, given their large population, it is still possible to find the necessary brains to run their operations there.We also figured out that given our comparatively high wages, we don’t have to invest in the future brains of our economies; we can just import them from elsewhere.So in effect, we are not only net importers of manufactured products and services from Asia and elsewhere, we are now also importing our future elites.

This fact has been confirmed by the latest data on US immigration.The largest group of migrants comes from Asia, and the overwhelming majority of them have at least a bachelor’s degree.They earn on average about 1/3 more than the average American, so in effect these are our new elites[i].Fareed Zakaria made a show, praising this already long established trend in Canada, just a few weeks prior to this data coming out.US presidential hopeful Mitt Romney also stated that he is for the concept of reforming immigration in a way that will encourage high skill immigration.It is certainly hard to argue against the economic benefits of such a policy.It most certainly benefits the local and global economy when the right person can be found for the right job.Economies of scale are always more efficient and this process of globalization certainly helps do that.As a result of the strong argument for this process to go ahead, as well as our cultural values that deem most challenges to this trend as taboo, any mention of the negative aspects of this process are deemed to be unacceptable in our public discourse.

I do fear for the long term negative implications of this trend however, and I think we should be discussing them, even if it is frowned upon to do so.Most people in the western world grew accustomed to seeing an improvement in the economic situation from a generation to the next.That trend is clearly broken now, and there is no disputing it.Who would have thought just two decades ago that there would be an explosion of young people not being able to cut it in the world and having to move back with their parents?[ii]Who would have thought that half of all recent graduates will be unemployed or under-employed?[iii]My parents were so proud when I finished University.Yet they were so amazed to see me go off to working my first job as an undergrad in construction.While working in construction, I met a few others who were in the same situation.I also met a few people who I believe turned out to be wiser by not wasting their time, and dropping out early, to pursue a career in a trade instead. Construction work pays very well at the moment in Canada.I at least was one of the lucky ones who had some aptitude for it, so I could earn a decent wage, unlike many other recent graduates from my generation who were not lucky enough to have the ability or opportunity to “network” for a job (or win the affirmative action lottery, by virtue of gender or color of skin) after finishing university, and are thus now working at, or near minimum wage jobs in coffee houses, or at the supermarket.

Clearly, we do not have the ability to prepare and maximize our people in the economy anymore.Some countries still do it in Europe, but here in North America, we are failing the current and next generation.We are the victims of the process of achieving the economies of scale through globalization.The education system, as well as our cultural institutions, are not preparing us for the real world, because frankly, few of the ones with the power and ability to do so have an interest in it.We are being discarded.The only ones who can still escape this trap are the descendants of our elites, and a few of the very capable and lucky ones, who will still squeeze through.

What will happen to the North American human capital in the long-run?

As I already mentioned, the countries that are now emerging as the strongest competitors to our former economic hegemony, are countries that have it within their model of economic expansion to exploit the environment and the workforce more intensively.That can only take them so far in terms of being able to provide an ascending living standard for their constituents, so the next logical step will be to shift this exploitation to others.The first ones on the pecking order are obviously people living in states that failed them completely.We already see this trend emerging as we witness the expansion of China into Africa.

The above mentioned trend is rather obvious and easy for us to see and understand.The part that people have a harder time understanding, especially because too many of us are foolish enough to buy into an ideology, through which we judge the events unfolding before us, is that the members of North America’s wing of the western world, are being set up for a trap that once finalized, there will be no escape from.Social mobility is already more illusion than reality for most, thanks in large part to the fact that nepotism has now become a more important factor in whether someone gets his/her foot through the door than one’s value.As I said however, we are increasingly importing our elites from Asia, so at some point, ethnic based nepotism will become something that for those who do not have those ethnic ties will become an impenetrable wall.This trend is already observed in Canada to some extent, where in places like Vancouver, where Asians are increasingly dominant demographically as well as in the higher strata of power, many people are starting to feel increasingly marginalized if they do not belong to one of the dominant Asian ethnic groups[iv].

So, what will be left to us, who will not be able to achieve social mobility, will be increasingly scarce, low level jobs, in retail, construction, manufacturing, and other fields with little chance of upwards mobility.These jobs will pay increasingly poor wages, because this level of employment is being globalized in its pay scale, work conditions and benefits.The basic social safety net comprised of health, and pensions in the US, is being dismantled gradually and other western countries are contemplating doing the same, so when it will come time for retirement, we will no longer have the benefit of a bit of comfort, like our parents and grandparents did.So, basically the current misery of being exploited, imposed on the people in countries now emerging as economic superpowers is being shifted to the lower and middle class in the western world.Education, which needs to be fixed and re-tooled to fit the needs of the labor market, is being gutted instead, so there is no doubt at this point that the basic model of building up the human resource and utilizing it, which I described as the path meant to provide prosperity for people is broken.We will never see those days again, unless we are willing and wise enough to change direction and do it soon.

5 comments:

The reason we are failing our own human resource is the social ideology that we are not allowed to tell a person that he/she should not waist their time going to university that we are not allowed to tell them what we truly see in their abilities.We have councilors in every school yet they are not there to tell us what we can or can't do because that would be against my human rights. they are there to guide us and listen to us but after knowing us almost better then our parents for our potential they do not have the freedom to express it. So yes we are raising our future human resource weak, incapable to have the drive needed to succeed in life no matter if they will become doctors or construction worker. so we will have no choice but to bring in the brains from China where their children are raised to reach their truth potential, or bring in the man power for construction because our work power has rights to choose not to work and be on welfare.

I never considered myself a book smart person, I always had more of street smarts. But I'm looking at my child today just finishing grade 4 and the things she learned until now I learned by grade 2. In grade 5 we already learned ancient history, so Ok that did't stick with me when I was that age but today I surprise myself about the things that come out of my head even wandering where did I learn that from. But all my life I had the streets smarts to fall back on, my child will not even have that.

I totally agree with you about not concentrating harder on our own human resource. Unfortunately the only one of us that has a chance to make it in the future society are the once that come from families with money, the once that the parents sacrifice their lives by staying home and actually teach their children themselves, and the onece are simply born genius. And not to forget the onece that they parents do not give a horses tail about their children and have no choice but to develop street smarts and they will be the onece to run everybody.

We all have a place in this world, we just have to find it and embrace it. I know I did, but it gets me upset knowing that today's society will fail giving the proper tools for my child to be able to get to the point that I'm at in my life wherever her destiny will take her.

Thanks for your comment, and for sharing. I hope we can come up with a way to help create a better chance for your daughter and all of their generation. There are no easy answers. As parents we can try to do the best for them, to make sure they get the tools needed. The place to start in my view is to try to understand the world we live in, so we can understand what it is that they need, and what are their realistic options. There is no question that the current social consensus is not in tune with the realities of this world.The worst part as I mentioned in the article is that our elites are abandonning us, since they see it as a path of more benefit to them personally (short to medium term). That will make things more dificult, since we have to fight against a dominant and powerful trend.

I would like to thank you for the efforts you have made in writing this articlenice post, that's very interesting information thanks for sharing :)I introduce a Economics student in Islamic University of Indonesia Yogyakarta

About Me

Author of book "Sustainable Trade". Book's central subject is a proposal for the elimination of all current bilateral, and multilateral trade agreements, in favor of a new tariff system meant to encourage sustainability. Double honors degree in History and Anthropology, and a B.A in Economics.